Movement of workers in the EU have had less of an economic impact than expected

by Ray Clancy on May 6, 2011

Labor impact in EU integration reviewed

Movement of workers from east to west Europe after the enlargements of the European Union in 2004 and 2007 were not as major as many had predicted, a new research report shows.

There had been fears voiced in countries like the UK and France that a mass migration of workers from countries like Bulgaria and Romania would have a major economic impact but an analysis by the London based National Institute of Economics and Social Research suggests otherwise.

It says that the EU enlargements resulted in ‘a substantial increase in labour mobility’ but the macro economic impact has not been as much as had been expected.

‘The macro economic impact of the population shifts attributable to the 2004 and 2007 enlargement processes on the EU 15 as a whole is expected to be negligible, possibly raising the long run level of potential output by about 0.1%,’ the report says.

The impact though is different for each country depending on their population levels and economic output at the time. For example, in Ireland it is expected to be more significant, perhaps raising the potential level of Gross Domestic Product by more than 1% in the long run.

Initially the biggest impacts were in Italy and Spain after the 2004 enlargement, but by 2009 these had affected the level of GDP by less than 0.1% in both countries.

The impacts on the sending countries, on the other hand, have been more significant.

‘Our estimates suggest that by 2009 the level of GDP in Romania was more than 1% below the level it might have achieved in the absence of accession to the EU. In Bulgaria the level of GDP was probably about 0.4% lower in 2009 than it would have been without the loss of labour force that occurred as a result of EU membership.

It says that the unemployment rate in Romania may have been about 0.2% lower in 2009 as a result, while the impact on the unemployment rate in Bulgaria is imperceptible at the macro economic level.

It also found that accession to the EU had no impact on emigration from the Czech Republic and Slovenia to the EU 15.

This month marks the end of all restrictions on the free movement of workers within the EU for citizens of countries that joined in 2004. While the UK, along with Ireland and Sweden, allowed immediate free access to its labour market in 2004, other member states imposed temporary ‘transitional arrangements’, which restricted access to employment.

Restrictions have been lifted gradually by other member states. Only Germany and Austria maintained restrictions on the free movement of workers during the entire seven-year transitional period, the maximum allowed by the accession treaties.

The report points out that the pattern of restrictions in place at the beginning of the 2004 enlargement diverted migrants away from traditional destinations, namely Germany, towards the more easily accessed labour markets in the UK and Ireland. The UK has probably benefited from the restrictions imposed by other member states.

‘Our preliminary results suggest that the transitional arrangements in place between 2004 and 2011 will have raised the potential level of output in the UK by 0.3 to 0.5% and in Ireland by 1.4 to 1.7%, while they will leave a permanent scar on the level of potential output in Germany of 0.1 to 0.5%. In the sending countries, the Baltic States can expect a permanent scar of 1% or more on the level of output,’ it says.

It also says that the lifting barriers in Germany may now divert some Polish and other workers away from the UK and towards Germany, especially given the relative strength of the German economy compared to the UK.

‘But as the existence of support networks for new migrants is one of the most important factors affecting the location decision, much of the shift in EU 10 migrant shares since 2004 is likely to prove permanent,’ it concludes.